Drivers and homeowners

How to buy a home with a friend – and stay friends

By Renée Sylvestre-Williams

Careful emotional, legal and financial planning could make co-buying with a friend your ticket to home ownership in today’s pricey real estate market.

When my roommate and I were ready to co-buy a home after years of renting, we thought we’d pool our resources: maybe get a nice little condo or townhouse in Toronto where we could host cocktail parties in the backyard. We’d lived together successfully as renters, so becoming co-owners made sense.

Seems perfect, right? Alas, once we got out and started looking at places, nothing quite fit the bill. The bedrooms weren’t the same size — important! — there wasn’t enough privacy for two adult women, or the location didn’t work for one of us.

Finally, we had a heart-to-heart. Turns out, we weren’t as compatible as we had originally thought: She wasn’t a huge fan of my casual attitude towards the dishes piling up in the sink, for example, and my appreciation for her lovely cat didn’t extend to the shed hair adorning the apartment.

Explorations and conversations such as ours are likely to become more and more common, as continuing high prices put traditional home ownership out of reach for many Canadians.

In fact, a survey by credit card-provider Capital One showed nearly half of millennials would consider purchasing a home with a friend and, according to a report by RE/MAX realtors, more than 40% of Canadians overall would think about buying with a friend or relative. It isn’t really any great mystery why: The average home in the greater Toronto area sold for $766,300 this spring, according to the Toronto Real Estate Board. That number jumped to just over $1 million in Vancouver — and the rental vacancy rate was less than 1% in Toronto and Vancouver. So splitting the steadily rising cost of real estate with a trusted friend can be extremely tempting. Going in with a friend is also becoming an increasingly popular option for widowed or single retirees.

If you’re going to buy a home with a friend, however, it’s essential you do the necessary financial and emotional planning first.

Agree on the basics

Haphazardly touring potential houses or condos can make your head spin, so before you begin your search, take the time to sit down with your friend and get on the same page, both metaphorically and literally, about your short-term wants, long-term goals and bottom-line needs.

Separately put your ideal locations, square footage, number of bedrooms and baths, community amenities and, most important, price point down on paper.

Now compare notes. Do you still seem compatible?

Establish a budget

This is the time to take a deep breath and lay all your financial cards on the table: What can you both afford? Are either of you bringing extra money into the purchase from, say, relatives or an inheritance? Have you factored in property taxes, hydro bills, closing costs, legal fees, debts and other expenses?

Conversations about money are often difficult to navigate with friends and family, but applying for and potentially taking on a mortgage is a substantial commitment. It’s important you understand each other’s finances in detail so there aren’t any surprises after you get the keys.

Ideally, the purchase would be a 50-50 split, but if it’s not, then now is the time to discuss how the ownership and expenses should be split — with help from a lawyer, if need be.

Future-proof your relationship

To protect your joint asset as well as the health of your friendship, it’s important to buy enough insurance to protect you both from the unexpected. That includes homeowner’s insurance to cover the cost of things like burst pipes, a leaky roof, fire or theft, and mortgage protection insurance, which combines life insurance and critical illness insurance to protect your investment, should you find yourself unable to pay your share of the mortgage due to serious illness or death.

Create a co-ownership contract

A lawyer can help you create an agreement that clearly and legally outlines roles and responsibilities around matters such as:

How to divide ongoing expenses, such as repairs, insurance and maintenance

How to divide chores

What would happen if one owner decides to sell out, including the right of first refusal from the second owner and the process for establishing a fair market value

The ownership shares in the home

What would happen if one person becomes unemployed or ill and can’t afford to pay his or her share of the mortgage

Does this sound dire? It really isn’t. Much like good fences make good neighbours, good paperwork makes lasting friendships.

In the end, my friend and I realized we actually both wanted to live on our own, so we went our separate ways.

But if, after doing your due diligence, a joint purchase still appears mutually beneficial and financially plausible, by all means move forward toward the last step in the process: Hosting that first cocktail party together in your brand-new home.